by Ridwan Nugraha

Over the past several decades, public administration has experienced reform. Within the New Public Management (NPM) hegemony, the public sector has shifted from classical Weberian bureaucracy to a contemporary model which emphasises the radical improvement in public management. The transformation from traditional bureaucracy is departed from the dissatisfaction of the public administration system that is believed to have many limitations. By adhering private sector management and market approaches, the public sector attempts to modernise the bureaucracy. “At its core, NPM represents a set of ideas, values and practices aimed at emulating private sector practices in the public sector” (Bourgon 2007, p. 13). The central idea of NPM is to upgrade the old paradigm of bureaucratic government towards more effective, efficient, and responsive public governance. Still, NPM is also seen as imperfect because it has weaknesses. However, while this model has limitations, NPM is attractive as a vehicle in delivering public policy around the globe, which offers many benefits.

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This article will argue that despite the limitations in public sector reform through NPM, it has more strengths in achieving public policy purposes. In supporting this thesis statement, the article is organised as follows: it begins with an explanation of the concept and history of NPM; afterwards, the paper will elaborate on the rationale, advantages, and strengths of NPM by using an example from the perspective of governance via market and contracts; further, it will present several limitations of NPM and providing its counter-argument. Finally, the article will conclude that NPM offers more advantages rather than drawbacks.

The concept of NPM

NPM emerged in the 1980s when many governments experienced economic slowdowns and massive inefficiency in public spending (Pollitt 2003, p. 32) because the traditional bureaucracy was incapable in performing public administration (Hughes 2008, p. 74). At first, the NPM concept was embodied in several countries. The Thatcher administration in the UK started a program called Financial Management Initiative (FMI) in an attempt to reform public financial management, followed by Australia and New Zealand. Meanwhile, NPM in the US also made many attempts under Reagan’s reform in practising public management (Heinrich 2011, p. 6). An effective and efficient managerial, as well as responsive and accountable public policies are some of the reform goals (Wright 1994 in Christensen, Lie & Lægreid 2017). In brief, NPM is public sector reform proposed to improve traditional public administration, which tends to be less productive; this transformation is intended to adjust the bureaucracy towards improved public management.

In 1991, Christopher Hood proposed the “seven doctrines of NPM”, becoming the foundation in public reforms. The foundational theory put greater emphasis on the embracing of private sector practices, such as performance quantification, output controls, and competition (Hood 1991, pp. 4-5). The theory was then applied in various public practices in measuring performance indicators, separating public services through purchaser-provider split, and involving more non-governmental actors in delivering public services (Hughes 2008, p. 74; Klijn 2012, p. 202; Stoker 2006, p. 45). During the NPM era, several countries became the reference for implementing the NPM, uniquely New Zealand and Australia made some radical alterations in changing the paradigm of bureaucratic administration (O'Flynn 2007, p. 353). From these viewpoints, NPM is dedicated to enhancing public sector bureaucracy and improve public policy in delivering better public services through several approaches of private sector management.

The rationale and strengths of NPM

Two main ideas drive the NPM reform. First, minimising the government’s role in handling public policy. The public sector functions as policymakers and service providers must be separated because conventional bureaucracy is believed to have many deficiencies in delivering public services. Pollitt (2003, pp. 32-3) argues that well-educated society demands first-rate public services, and they do not expect poor services from the weak government. Moreover, the public sector usually performs worse than the private sector in providing services (De Vries & Nemec 2013, p. 6). Hence, it is crucial to reduce the government’s portion in some public policy areas by “steering than rowing”. Osborne and Gaebler (1992, p. 32) assert that government does not need to provide all public needs, meaning that to meet societal objectives, the government can delegate public services to other parties, rather than employing more people inside the bureaucracy.

“Steering than rowing” indicates the government transformation to governance where the public sector is no longer exclusive, but it shares the public services provider role to another party. The monopolistic services provision by the government can be replaced through more extensive alternatives on the market-oriented framework (Hood 1991, p. 5; Stoker 2006, p. 45), meaning the government does not have responsibility to always provide every public need, instead other organisations can also fulfil the needs, i.e. via contracting out or public-private partnerships (Pollitt 2003, pp. 27-8). Meanwhile, for other specific services (e.g. law and order, defence), the government must fulfil them through bureaucracy to ensure the availability of public services.

The NPM second premise is to improve public sector performances. This idea is devoted to addressing traditional bureaucratic shortcomings that are considered extravagant. The bureaucracy habitually involves extortionate public spending and the government expenses are partly ineffective because the public policy targets are often irrelevant to annual funding (OECD 2010b, p. 13; Pollitt 2003, pp. 32-3), affirming that public administration is costly and ineffective. Thus, NPM offers improvement in managing public expenditure with its essential philosophy “do more with less”. Public sector needs to focus on greater discipline in using public resources; achieving optimal performance with the minimum expense (Hood 1991, p. 5). In brief, the cost-awareness principle, when using public resources leads to efficiency.

“Do more with less” is the concept emphasising on efficiency and high control of spending. NPM employs several approaches to achieve efficiency in the public sector operation, including professional management, results-based performance, value for money, and customer orientation (Rhodes 1996, p. 655). The value stresses on target achievement in performance indicators system; each activity must be carried out efficiently and explicitly that the use of inputs produces optimum output (Pollitt 2003, p. 38). Linearly, NPM encourages value for (taxpayers) money in exercising the authority and delivering public services by putting more weight on productivity and the importance of results generated. Therefore, NPM focus on promoting efficiency and value for money: spending public resource carefully, relevant to the targets, and aimed at achieving objectives.

Strengths of NPM in the spectrum of governance via market and contract

Practically, the NPM’s manifest is applied in the form of governance via market and contract. This strategy allows the public sector to govern public policy by utilising markets and commercial contracts. Currently, most of the public governance use contracts and services from private parties, as well as promoting the privatisation, deregulation, and public-private partnerships development (Bell & Hindmoor 2009, p. 17). The market and contract in governing public policy are desirable. Take the public-private partnership (PPP) mechanism, for example. Since the NPM reformation, traditional procurement has shifted because the public sector budget is limited to meeting society’s increasing needs. Hence, one way to procure goods and services from the private sector is through a PPP contract. Siddiquee (2011, p. 131) writes that PPP is teamwork among the public and private sectors cooperating based on a medium or long-term contract to provide public services. In other words, public sector steers the private sector by giving more authority in providing public services directly to the citizens under the government’s supervision bound by contracts.

Indeed, PPP is broadly implemented in the attempt to realise policy objectives because it has numerous strengths. First, it corresponds to the doctrine of doing more with less, PPP encourages efficiency and value for money, where the projects mostly utilise private sector resources in providing public services. Hence, the public sector does not have to allocate most public budget for the services. It is reasonable since the private sector can produce quality goods and services at low expenses (Linder 1999, p. 36). Additionally, PPP can be ascertained to be efficient because previously, it has gone through the assessment stage in the Public Sector Comparator (PSC) (English 2006, p. 255). This tool can determine whether the costs to be incurred result in higher value for money compared to conservative public procurement.

Furthermore, the PPP scheme can provide infrastructures earlier without interrupting public budget (OECD 2010a, pp. 22-3). The public sector, having a limited budget, can then re-allocate budgets for another priority, such as welfare programs for health and education. Another strong point is PPP fosters modernisation in public provisions. Compared to the bureaucracy believed to inhibit innovation, the private sector has expertise in producing quality products because of its ability to create innovation through technology. In some PPPs contracts, a build-operate-transfer (BOT) arrangement in infrastructure use various structures and processes involving technology (Brinkerhoff & Brinkerhoff 2011, p. 6). Therefore, by engaging technology, and reducing the cost, citizens will receive more benefits from PPP.

For demonstration, PPP projects in Singapore have succeeded in implementing the NPM principle. Since 1970, Singapore has faced a clean water crisis. Thenceforth, the island-state has fulfilled its water needs majority by importing from Malaysia. Problems arose when exporters want to increase prices more than 15 times. In response, a PPP project called Tuas Desalination Plant (TDP) was built in 2005 at the cost of USD120 million; it was less-expensive compared to a similar plant in other countries, it produces 10 per cent of public water demand. The project was built to overcome the dependence on clean water by implementing the seawater reverse osmosis technology, cultivating seawater into safe tap water (Chen, Maksimovic & Voulvoulis 2011, p. 61; Tortajada 2006). Under a 20-year contract, a private company is given the authority to design-build-own-operate (DBOO) the desalination plant with around 30 million gallons of water supplies per day. The project was expanded with the construction of the second and third plants under PPP contracts for 25 years and projected to fulfil 30 per cent of water needs in 2060 (Public Utilities Board 2019). From the example, it becomes evident that the PPP project promotes efficiency and value for money, as well as fostering innovation in the effort of improving public service provision.

NPM Limitations and its rebuttals

Although NPM offer advantages in managing public policy, several arguments oppose this concept. First, some claim that NPM is resulting in the hollowed-out government. Within the reform, the public sector experienced significant transformation and re-organisation. The separation of policy-making and policy implementation said to have created hollowing-out the state. According to (Klijn 2002, pp. 150-1), a hollow-out state is when government’s authority and responsibilities are distributed to many agencies, (including private sectors and non-profit agencies) generating the complexity in decision-making and public policy control. The hollowed-out state brings adverse effects leading to the state fragmentation because the public sector size is decreasing. Linearly, fragmentation also leads to control reduction in policy implementation (Rhodes 1996, pp. 661-2). In an extreme situation, a hollow state could occur when the government gives most responsibilities in delivering the public policy to third parties through contracts (Milward & Provan 2000, p. 362) so, the government merely responsible for negotiation, observation, and contracts evaluation. Hence, NPM opponents claim that a hollowed-out state might reduce the task of the public sector as the custodian of citizens.

Another sceptical argument is that NPM undermines public accountability, which lessens the government’s role in providing justifications. Some argue that the role changes from rowing to steering create difficulties in actualising the accountability. Under the indirect role, the results of facilitating and monitoring the market to perform a public task are relatively “intangible, immeasurable, and unverifiable” (Haque 2000, p. 602). Also, in a “hybrids” public-private project, it might be challenging to hold accountability since it often a closed-door business decision and resistant to the public discussion (Skelcher 2005, pp. 361-2). In other words, it is claimed that the citizens can not directly oversee indirect public services by private parties because it operates in a commercial way, where confidentiality become the private sector’s core business.

An ideal illustration is Sidney’s Cross-City Tunnel (CCT). It intended as a 30-year PPP contract given by the New South Wales government to a consortium called Cross City Motorway (CCM). The project was arranged to build-own-operate-transfer (BOOT) a toll-way in the business district to reduce traffic congestion and improve convenience in the area. It was publicly launched in 2005, but the tunnel was under-performed due to the high user charge, problems on the surface road, and it was boycotted by Sydney’s citizens after the government closed toll-free road and forced people to use the tunnel. Since then, the tunnel became public attention and aroused citizens’ anger. In 2006, the project got collapsed since CCM went bankrupt (Siddiquee 2011, pp. 136-8). A critical issue is the project accountability is challenging when the government and its colleagues do not want to disclose information about the contract on the grounds of “commercial confidentiality” (Regan, Smith & Love 2011, p. 369). Thus, it can be claimed that NPM could also have limitations that can harm the state and society.

Rebuttals of NPM limitations

Undeniably, some commentators show the anxieties on NPM concept and practicability. However, this is not necessarily the case. First, the hollow-out state situation might not automatically reduce the obligation to protect the citizens. NPM is effort series in improving governance with a variety of strategies, from rectifying internal management to giving permits to the third sector in meeting policy objectives. Peters (1997, p. 52) argues that the philosophies of “hollow vessels”, governing without government, is often exaggerated. In the NPM context, the government do not merely give up public responsibility to other parties. Instead, they manage it in the collaboration framework. The government, as leading players, is enhanced by the partnerships with a board of actors strengthening the governing capacities (Bell & Hindmoor 2009, p. 2). Hence, within the NPM agenda, the government not only ameliorating the bureaucracy but also expanding the governance with cooperation to fulfil public needs.

Second, the accountability issue in delivering public policy by private sector might be overstated. The public sector is still accountable to answer, explain, and justify the input and process of the policy, such as preparing and deciding contract, monitoring, and evaluating indirect provision by third parties. Also, public accountability can be observed by performance. Aucoin and Heintzman (2000, p. 52) assert that improvement in public policy can be supported by results-based accountability. In concrete, public accountability can be provided by periodical reports of public services performance (e.g. annual report, financial statement). Moreover, public accountability is currently not only put in the government domain but also an obligation for the private sector in the good corporate governance framework (GCG). There is a positive correlation between GCG and corporate sustainability (Aras & Crowther 2008, p. 444), meaning that the private sector must accomplish good governance requirements to sustain its business operation. In PPP case, the partnerships must provide multiple information, especially to the citizens to achieve public sector accountability and private sector governance (Shaoul, Stafford & Stapleton 2012, p. 214). Thus, NPM might not necessarily inhibit public accountability.

Third, despite some PPP failures, this governance model via market and contract is acceptable in delivering public policy. Figures show from 73 Australia’s PPP projects in 1997 to 2008, only five of them experienced dispute and needed legal action, with the total loss of the project’s equity is not significant at approximately 8.5 per cent (Regan, Smith & Love 2011, p. 370). Given the data, it can be proven that the PPP failure rate in Australia is low. In support, the PPP mechanism remains a strategy to provide public policy. For instance, since 1997, the UK has implemented PPP projects as a dominant tool of governance within its modernisation agenda. In 2004, the UK employed 650 projects with a total cost of USD 13 billion under the PPP scheme, 400 of them are already operating (Flinders 2005, p. 215; OECD 2008, pp. 28-9). Therefore, PPP is still the mainstay of governing public policy because of its importance.

Finally, NPM is still one of the choices for governance strategies in exercising public policy. Started in the UK, NPM and PPP are expanding but not limited to New Zealand, Australia, and the United States before influencing public sectors in Europe (e.g. Germany, France, Spain) and Asia (e.g. Korea, Japan) and several developing countries (Lane 2000, p. 3; Manning 2001; OECD 2008, p. 29). In other words, the NPM legacy over the past three decades is still applicable to current public sector activities, so it is commonly practised throughout the world. It is plausible because many NPM instruments are compatible and widely used in many public sector operations around the globe. For instance, performance measures, output control, efficiency, as well as contracting and partnership with private parties catalyse to achieve optimum public sector performances and promote more considerable improvement in public services provision.

In conclusion, NPM having been practised around the world since three decades ago. It becomes a strategy in ameliorating inefficient and ineffective traditional bureaucracy towards modern public management, also the endeavour in improving public services provision. The manifest of “steering than rowing” and “do more with less” is its core rationale in attempts to minimise the government’s role and upgrading public services performance. More steering (governance) rather than rowing (government) and tight control on public expenditure is implemented by separating government as policy-maker and policy-provider. The principles can be applied in the governance via market and contract through public-private partnership (PPP) when the government gives authorisation to the private sector in delivering public policy under a long-term contract. It has strengths in endorsing efficiency, value for money, encouraging innovation in improving public services and realising policy objectives.

Despite NPM’s benefits, some disagree by arguing it contributes to hollowed-out state and problems in public accountability. However, the claim might be exaggerated. First, vis-à-vis the hollowed-out state, instead of giving all responsibilities to other parties, the government expands and leads the governance in partnerships framework. Second, NPM is not impeding public accountability, but it supports comprehensive answerability comprising input, process, and results of the public sector activities. Also, public accountability is currently performed not only by the government but also by the private sector through good corporate governance, correlating with business sustainability. Third, evidence shows the failure proportion of PPP projects in Australia is not significant if compared with its success rate, and a high number of PPP contracts in the UK indicate that it remains chosen by the public sector in achieving policy targets. Finally, NPM and PPP are implemented worldwide because they are compatible in most public sector operations. To conclude, New Public Management reform, with its strengths, offers more significant advantages in the public sector management as efforts in realising and improving public policy purposes.

(*This article is a duplicate of this page)


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